Tax, ethics, and corporate social responsibility

We recently blogged TaxProf writing on the issue of tax and Corporate Social Responsibility (CSR). Two new studies are highlighted, examining the association between corporate social responsibility and corporate tax aggressiveness. Results of both studies show that more socially responsible corporations are likely to deter tax aggressive activities.

Ethical Corporation has joined the debate in an article in its latest edition Can Pay Should Pay, which highlights how public opinion has become far less tolerant of the widely-held corporate view that tax dodging is accpetable business practice. Crucially, Ethical Corporation points out the business case for a corporation paying its due, underpinned by transparency:

Tax practices may be attracting headlines, but the ethics of tax is not entirely new. Corporate tax payments in the developing world have long been the subject of scrutiny. The Extractive Industries Transparency Initiative, for example, which attempts to increase disclosure of payment by natural resource companies to governments, dates back to 2002.

What definitively is new, however, is the general recognition that tax is now a core responsibility issue for business.

This has been a core TJN objective since 2005, and its reassuring to see this change happening. As the article explains:

At its most basic, the ethics of taxation ultimately derives from companies’ social contract with the countries in which they operate. Taxes fund public goods such as education and healthcare. When large companies evade or avoid tax, governments are left with one of two choices: cut spending, or tax individuals and smaller domestic businesses more.

Ethical Corporation cites TJN's argument that mitigating tax payments may not be illegal, but neither is it entirely responsible when such practices negatively impact a country’s social and economic wellbeing, and quotes John Christensen, TJN director:

"In other words, don’t use aggressive tax avoidance and evasion and then try to pretend that you are engaged in a corporate responsibility agenda. The two are quite simply incompatible,”

And as the article points out, the public are becoming increasingly aware:

In times of fiscal tightening, all eyes turn to the question of who pays what into the public pot.

At the core of the issue, critically important in terms of corporate culture and economic reality:

Ethics aside, a compelling business case for responsible tax planning can also be made. Reputations are at risk.

Ethical Corporation warns:

Recent months have seen protesters camped out in front of Boots, Top Shop, Vodafone and a host of other high street retailers. It’s not just bad press companies need to worry about. A “tax dodger” badge, fair or otherwise, can lead to a host of costly repercussions, from legal challenges to the loss of favourable tax status. “Once a pattern of uncertainty in taxation reporting is known to exist, then it is possible that a company may trade at a discount to its true value for fear that further uncertainties will be revealed,” consultancy firm SustainAbility stated some years ago in a far-sighted report on tax.

Crucially, the article observes:

The spotlight is turning in particular on corporate operations in developing countries, especially those with “material” tax bills. A case in point is Ghana, where one sixth of the country’s entire tax revenues derive from foreign-owned businesses. Greater disclosure of overseas tax payments is currently under consideration by European and US legislators. Some companies – but not many – are pre-empting the possibility of future regulation by publishing tax payments on a country-by-country basis.

TJN expands on what needs to be done on our webpage Corporate responsibility and Accountability.

On this blog, we highlighted in Welcome words, now walk the walk, a blog by Richard Murphy's Tax Research UK on the pharmaceutical giant GlaxoSmithKline, which recently stated an intent to pay more of its share in tax.

Richard Murphy concludes his comments: "The choice is yours: gestures, or the real thing?"

Many companies tout their corporate social values and activities as a way to attract investors, reassure employees and woo consumers. Yet, despite many in the corporate world being genuinely concerned to do good, spin and hypocrisy is rife. See here for instance, in our report on the recent United Nations meeting on transfer pricing. We urge a genuine drive towards real social responsibility with tax justice at its core.